Watchdog Reports

Agreement calls for funeral trust fund to remain under receiver's control

A Dane County judge Wednesday froze a state securities complaint against the Wisconsin Funeral Directors Association and ordered that the group's beleaguered funeral trust fund remain under the control of a court-appointed receiver.

The order comes after state regulators filed the civil complaint last month charging that the Wisconsin Funeral Trust Fund has a financial shortfall of at least $21.5 million, and that the trade group that owns it was using fraud and deceit to sell prepaid funerals contracts.

Dane County Judge Peter Anderson ordered that the court action be stayed but said the state Department of Justice could lift the stay and resume the action at any time.

Anderson's order, which approved a stipulation worked out by attorneys representing the various sides in the case, also called for:

Reimbursing funeral directors who are covering the costs for families that prepaid their funeral expenses but cannot access those funds because of the receivership. The stipulation calls for paying the directors 60% of the costs now. They may be paid more as funds become available. In cases where a person purchased a prepaid funeral contract in Wisconsin but is buried out of state, the fund will cover all costs of the funeral.

Removing the funeral directors association from the receivership, although the group must cooperate with John Wirth, the court-appointed receiver, and provide him with all records and other materials relating to the trust fund.

Keeping the funeral trust fund in receivership. That means Wirth will continue run the trust and have the power to take actions, including filing lawsuits, to recover any losses incurred by the trust. Wirth will be paid by the funeral trust and can hire a variety of experts including additional attorneys, accountants, investment advisers, public relations practitioners and other consultants, auctioneers and lobbyists.

Wirth earlier fired Michael and Patrick Hull, who worked as the investment advisers for the fund, and Scott Peterson, who had been the association's executive director. Among Peterson's employees were his father, who Peterson said worked on a variety of projects, and his brother-in-law, Thomas Moore, who had been the association's lobbyist. Peterson said the association board was aware his two relatives were on the payroll. Peterson's compensation package was worth $270,000 to $280,000.

The state complaint filed by the Justice Department on behalf of the Department of Financial Institutions said funeral directors were selling unregistered securities and likened the trust fund to a Ponzi scheme, saying it was pitched as a conservative investment even though the fund was putting cash into a variety of risky investments, including hedge funds and futures.

About 10,500 Wisconsin families prepaid their funeral expenses using the fund. The state says the fund should have about $70 million but actually has less than $50 million.

A Journal Sentinel review of the fund records disclosed that the fund has been underwater since at least 2007.

In other court filings this week, both the association and Fiduciary Partners Inc., an Appleton company that was the trustee for the fund, asked the court to dismiss actions against them. The trade group is arguing that its members were not selling securities, but rather that individuals who paid into the fund were simply prepaying their funeral expenses.

The fund promised earnings equal to 1 percentage point greater than the average rate of a three-year certificate of deposit. In reality, the investment goals for the funds - a figure not disclosed to investors - called for the fund to post earnings that were several points greater than the stated goal, documents show.

Fiduciary said its role was merely custodial and it was not involved in investment decisions.

"Fiduciary Partners is not, and never has been, involved in deciding how any funds are invested on behalf of the (funeral) trust, or in marketing the trust to funeral directors and consumers," Peter Rogers, president of Fiduciary, said in a statement.